Under The Bonnet, IMCO Industries' (TLV:IMCO) Returns Look Impressive

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in IMCO Industries' (TLV:IMCO) returns on capital, so let's have a look.

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What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for IMCO Industries:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.27 = ₪36m ÷ (₪332m - ₪200m) (Based on the trailing twelve months to December 2024).

Therefore, IMCO Industries has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 22% earned by companies in a similar industry.

Check out our latest analysis for IMCO Industries

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of IMCO Industries.

So How Is IMCO Industries' ROCE Trending?

Investors would be pleased with what's happening at IMCO Industries. Over the last five years, returns on capital employed have risen substantially to 27%. Basically the business is earning more per dollar of capital invested and in addition to that, 33% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 60% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

In Conclusion...

To sum it up, IMCO Industries has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 497% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to know some of the risks facing IMCO Industries we've found 4 warning signs (3 make us uncomfortable!) that you should be aware of before investing here.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.